The central government on Tuesday reconstituted the Monetary Policy Committee (MPC) ahead of the monetary policy review of the Reserve Bank of India (RBI) on October 7-9. The government has appointed three external members in the MPC — Ram Singh, Director, Delhi School of Economics, University of Delhi; Saugata Bhattacharya, Economist and Nagesh Kumar, Director and Chief Executive, Institute for Studies in Industrial Development. The three external members have been appointed for a period of four years. Other members of the MPC are from RBI which include the Deputy Governor of the RBI in charge of monetary policy and one officer of the RBI nominated by the Central Board. The RBI Governor is the Chairperson of the MPC. Ram Singh has a PhD in economics from Jawaharlal Nehru University and has done his postdoctoral fellowship from Harvard University. Saugata Bhattacharya has been an economist specialising in economic and financial markets analysis, policy advocacy, infrastructure and project finance, consumer behaviour and analytics. He was earlier the Chief Economist and Executive Vice President at the Axis Bank and was part of the RBI’s Working Group on Monetary Policy (2010) and the Finance Ministry Group on Estimating Foreign Savings (2011). Nagesh Kumar holds a PhD in Economics from the Delhi School of Economics and was earlier Director at the United Nations Economic and Social Commission of Asia and the Pacific (UNESCAP). The reconstitution of the committee could see a change in the differing stance within the MPC as earlier members have cited their dissenting views against the majority decision. In the August monetary policy, the six-member MPC, with a 4:2 majority, had left the repo rate unchanged at 6.5 per cent for the ninth consecutive time as persisting high food inflation continued to remain a risk. Before this, the members of the earlier MPC were notified by the Centre on October 5, 2020. The three external members were Ashima Goyal, professor at the Indira Gandhi Institute of Development Research, Jayanth R Varma, professor IIM-Ahmedabad, and Shashanka Bhide, senior advisor at the National Council of Applied Economic Research. Tenures of Goyal, Varma and Bhide will end on October 4. The MPC fixes the benchmark interest rate — or the base or reference rate that is used to set other interest rates — in India. The primary objective of the RBI’s monetary policy is to maintain price stability while keeping in mind the objective of growth. Price stability is a necessary precondition to sustainable growth. In May 2016, the RBI Act was amended to provide a legislative mandate to the central bank to operate the country’s monetary policy framework. The framework, according to the RBI website, “aims at setting the policy (repo) rate based on an assessment of the current and evolving macroeconomic situation; and modulation of liquidity conditions to anchor money market rates at or around the repo rate. Under Section 45ZB of the amended RBI Act, 1934, the central government is empowered to constitute a six-member Monetary Policy Committee (MPC) to determine the policy interest rate required to achieve the inflation target. The first such MPC was constituted on September 29, 2016. Section 45ZB says the MPC shall consist of the RBI Governor as its ex officio chairperson, the Deputy Governor in charge of monetary policy, an officer of the Bank to be nominated by the Central Board, and three persons to be appointed by the central government. The last category of appointments must be from “persons of ability, integrity and standing, having knowledge and experience in the field of economics or banking or finance or monetary policy” as per Section 45ZC. Under the flexible inflation targeting regime, the RBI has to maintain CPI in the 2-6 per cent range. It has been targeting to bring inflation down to 4 per cent on a durable basis. In the upcoming monetary policy to be announced on October 9, the RBI is expected to keep the repo rate - the rate at which the RBI lends money to banks to meet their short-term funding needs – unchanged at 6.5 per cent for the tenth consecutive time amid inflation concerns.
